Exactly a decade after ITC acquired 74% stake in India’s largest matchbox maker in the organised segment, the 92-year-old Wimco, a unit of global major Swedish Match AB, for around Rs 200 crore, the cigarettes-to-hotels major has decided to close the last unit in Bareilly, Uttar Pradesh. The company, the only one to represent the mechanised sector in the country, had been facing stiff competition from the unorganised sector for some time, but continuous excise duty disadvantage has now rendered it totally unviable, forcing the shutdown.
In response to a query from FE, a company spokesman replied that “the discriminatory tax structure for mechanised manufacturing units vis-a-vis semi-mechanised and hand-made matches coupled with the non-availability of materials, high cost of operations and the prevailing market price for consumers rendered the mechanized manufacture of safety matches at the Bareilly unit an unviable proposition.”
Of the 950 employees at the company, 650-odd permanent employees have already been given VRS, while a small group of 13 has been protesting at the unit gates and has begun a hunger strike. “Despite an unviable business context and incurring cash losses over several years, the management has ensured that all emoluments and benefits due to the workforce were always paid on time and based on subsequent discussions with the permanent workmen, a fair and handsome VRS has been offered in January 2015 and all the eligible workers of the Bareilly unit availed of the scheme,” the company spokesperson said.
Confirming this, the district magistrate of Bareilly, Sanjay Singh, said the company has amicably resolved the situation with a majority of employees. “Only a small group of people are protesting and we are keeping an eye on them, from the law and order perspective. Since most employees have agreed to the company’s closure and taken VRS, we see no role for ourselves there,” he said.
According to sources, with its takeover of Swedish Match’s 74% stake in Wimco in 2005 through its wholly-owned subsidiary Russell Credit, ITC had tried to consolidate its grip on the matches industry, which has so far been dominated by companies from the unorganised sector. “With the acquisition, ITC gained control of a mechanised capacity of 5 billion matchboxes a year through five factories, Kolkata, Chennai, Ambarnath in Maharashtra, Dhubri in Assam and Bareilly. And soon, ITC’s own brand of matches, AIM, Delite, IKNO and Mangaldeep started competing with Wimco’s flagship brand Ship.
But soon after, income from the safety matches business started declining. In a market that was shrinking worldwide, thanks to the onslaught of cigarette lighters and gas lighters, which had had started making their presence felt, Wimco was pushed to the limits due to sharp escalation in prices of raw materials and the continued tax differential between mechanised and non-mechanised sectors. And with margins in the matches business starting to dip drastically, ITC was forced to close down its Kolkata, Chennai and Ambarnath units in quick succession in 2010-11.
According to the company’s annual report 2012-13, Wimco’s net revenue from the safety matches business declined 5.4% during the year to Rs 144. 54 crore against the previous year’s Rs 152.86 crore.
“The company continues to face challenges in its main business of safety matches due to steep increases in the prices of key raw materials on the one hand and growing competition from the small scale and cottage sector on the other. The recent budget announcement increasing the excise duty on the mechanised industry while reducing the duty on semi-mechanised industry has put the company’s safety matches business at a further disadvantage …”, the report said.
According to Suresh Sundrani, who has been supplying the Karbonising machine to the Bareilly unit since 1982, the shutdown of the Bareilly unit is the last nail in the 90-year-old company’s coffin. “The reason why Bareilly unit was able to withstand the pressure for so long was the availability of cheap labour here. But with the cottage industry getting tax benefit, it was not possible for an organised unit like Wimco to hold on for any longer,” he says, adding that the unit had stopped getting raw materials already and all production has stopped since last week. “The company has already deposited the VRS amount in the employees’ accounts and on January 31, the unit will be closed down completely,” he said.